(That's basically what Henry Paulson, George W. Bush's Treasury Secretary, is saying.)
Here's what's wrong: throwing money at banks will, at best, save the bankers' jobs — the folks who got their institutions into this mess in the first place by neglecting the first principle of their job, which is this: banking is the art and science of risk management. (You have a pot of money. You want to use it to get more money. Do you lend it to person A, who you figure has a 25% chance of defaulting on the loan but is willing to pay you 1% per month in interest, or person B, who has a 1% chance of defaulting but can only pay you 0.5% per month? If you picked person B, congratulations: you're a good banker. If you picked A, you'd better hope there's a government hand-out in your future.)
But the obsession with the middle men tends to blind us to what's actually going on.
Somewhere around 5% of mortgages in the USA are currently in default. Securitization didn't solve the problem — if anything, it spread it around among financial institutions who weren't aware (although they should have been) that the long-term investment bonds they were buying were backed by toxic sludge.
But this isn't just about banks. Bailing out banks will save the financial infrastructure, but won't do anything about the 10-30 million people who were living in those properties that aren't affordable or viable any more. Flushing up to 10% of the US population down the homeless toilet is the real screw-up, and of course the Bush administration isn't interested in dealing with it. (They're poor, and a disproportionate number of the sub-prime mortgage holders are black, and — want me to continue?) The Bush administration is fairly transparent in its devotion to principle: it's run by rich folks for rich folks, and that's an end to it.
Never mind bailing out the banks: what needs bailing out is the human beings behind the collateralized debt obligations. The money would be better spent keeping roofs over their heads (and servicing those currently-non-viable mortgages, which action would, incidentally, keep the banks liquid).
In my more cynical moments I look at the demands for money emanating from the White House and what I see is the Mafia hoods running up the lines of credit on a business they've taken over before they complete the bustout. Eight years of asset-stripping and looting, and finally the coup de grace: $700Bn in no-questions-asked, no-oversight slush money.
Best of all? Fratto insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials. He acknowledged lawmakers were getting only days to peruse it, but he said this should be enough.
Draw your own conclusions.
Charles Stross is an award-winning (Hugo, Nebula and Locus) science fiction and horror writer based in Edinburgh, Scotland.